1938: Canada, Dominion Of

Constitutional Questions.

Bitter controversy over basic constitutional issues enlivened an otherwise quiet and reasonably prosperous year for Canada in 1938. These issues were of two types: (1) those concerned with the apportionment of powers between the Dominion and provincial governments, and (2) those concerned with fundamental relationships between Canada and the British Commonwealth of Nations.

Conflict between the provincial and central governments has been perennial in Canada, being analogous to but much more severe than the 'states rights' struggle in the United States. As a result of provincial jealousies, the Canadian Government has suffered a serious loss of power in recent years. Recent judicial decisions have deprived it of much of its capacity to intervene in time of depression and to negotiate important types of treaties. This situation has been difficult to remedy, both because of growing provincial animosities and because the Canadian constitution — the British North America Act of 1867 — has never been amended in any important particular. This Act can be amended only by the British Parliament.

In August 1937, a Royal Commission on Dominion-Provincial Relations was appointed by Prime Minister Mackenzie King with Justice Newton W. Rowell of Ontario as chairman. The Rowell Commission was instructed to 're-examine the economic and financial basis of confederation and of the distribution of legislative powers in the light of the economic and social developments of the last seventy years.' Hearings were begun in Winnipeg on Nov. 28, 1937, and continued throughout the greater part of 1938. Although the Commission was expected to report before the end of 1938, it failed to do so, being delayed by the resignation of Justice Rowell late in November owing to continuous ill-health. Justice Rowell also gave up his position as Chief Justice of Ontario, which he had held since September, 1936.

The Rowell Commission found that the Western provinces, with the exception of Alberta, were strongly in favor of amending the British North America Act to place unemployment insurance, old-age pensions, and wage-and-hour legislation within Dominion jurisdiction. They also favored the amalgamation of the Prairie provinces in order to permit more economical administration. The Duplessis government of Quebec, the Hepburn government of Ontario, and the Aberhardt government of Alberta, on the other hand, virtually boycotted the Commission. A proposal to unite the three Maritime provinces met with general opposition, although Nova Scotia was prepared to see a considerable extension of Dominion powers, particularly over marketing. New Brunswick declared confederation had been disastrous to the province and virtually claimed sovereign rights for itself.

Closely associated with the problem of Dominion-Provincial relations is the larger issue of relationship with the British Empire. It was the British Privy Council's action in invalidating the National Products Marketing Act, the Social Insurance Act, and wages and hours legislation in January 1937, that first raised the constitutional issue in its present form. As a result a bill was brought before Parliament in 1938 which would abolish appeals to the Judiciary Committee of the Privy Council in Westminster. It is alleged that the Privy Council does not understand the nuances of the Canadian situation, is too little trained in Canadian law, too casually selected, and has too short a tenure to constitute a satisfactory court of appeal for Canada.

The threat of war in Europe also resulted in a demand for constitutional change which would enable Canada to choose freely whether it wished to support Britain in a general conflict. The Mackenzie King Government has maintained that the Canadian Parliament alone has the power to decide whether Canada shall participate in a war, and that the Dominion has no obligation to participate in military sanctions of the League of Nations or in defense of the British Parliament. In taking this position, the Prime Minister has the full support of such large and diverse groups of the population as the French Canadians of Quebec, most Canadians of European ancestry, also Canadians of American birth or ancestry, and the left-wing Cooperative Commonwealth Federation.

The legality of the Prime Minister's position is, however, open to serious question. Although the location of the war-making power was not precisely defined by the 1931 Statute of Westminster, it is generally agreed that a declaration of war by the Crown is binding on Canada even if it does not actively participate in hostilities. It would be required to intern enemy ships, to abstain from trading with the enemy, and to allow the British navy to use the naval bases at Halifax and Esquimalt. Being thus involved, it would probably find it difficult to avoid direct participation. The British rearmament program of 1938, involving purchase of large quantities of airplanes and raw materials in Canada has made it clear that the Mother Country is relying on Canadian support in the event of war. Hope was expressed among pro-British elements that the forthcoming visit of the King and Queen, scheduled for May 1939, would greatly strengthen Canada's ties to the Commonwealth.

Fascist Developments.

Also related to the constitutional problem has been the growth of reactionary movements of a semi-Fascist character within three of the larger provinces. This development has been most striking in Quebec, where Premier Duplessis has enforced his Padlock Law with exceptional severity. In the first nine months in which this law was in effect more than 300 raids were made, and scores of private houses and public buildings were padlocked on the grounds that they were inhabited or otherwise used by 'Communists.' In the absence of a definition of 'Communist,' many liberals and progressives have suffered along with bona fide Communists. At the end of the year, landlords leasing flats to persons whose homes had been raided and searched for 'Communist' literature were warned that if they keep their present tenants their premises are liable to be padlocked. If enforced, this rule would drive all such persons out of the province, a procedure of doubtful legality under the British North America Act. While the Ontario Government of Premier Hepburn has not resorted to such extreme repressive measures as those adopted in Quebec, it has been allied with Quebec in defying the Dominion Government on constitutional issues, and has adopted extreme measures of its own for dealing with 'undesirable' labor unions. Avowedly fascist groups, such as the National Unity party headed by Adrien Arcand, a Duplessis follower, have flourished in Quebec, and to a lesser extent in Ontario. William Aberhardt's Social Credit party has no ties either with Duplessis or Arcand, but its Accurate News and Information Act, ruled unconstitutional by the Canadian Supreme Court on March 4, 1938, was of a highly repressive character. The fact that these three provincial governments have joined in fighting the extension of the Dominion's liberal social legislation in their provinces has raised fear lest they succeed in dominating the Dominion with their repressive measures. On Dec. 12, Prime Minister King reiterated the charge previously made by Labor Minister Norman Rogers and Transport Minister C. D. Howe that Hepburn and Duplessis were plotting to overthrow the present Dominion Government and to substitute a sham one which would really be controlled by Ontario and Quebec.

Canadian-American Trade Pact.

In contrast with the disquieting developments affecting Canada's constitutional status was Prime Minister King's achievement in obtaining a new trade agreement with the United States, improving on the one negotiated two years previously. The agreement was signed on Nov. 17, at the same time as the new British-American pact, and went into effect Jan. 1, 1939, pending ratification or rejection by the Canadian Parliament. Tariff concessions were made by the United States on Canadian minerals, dairy products, cattle, and maple sugar, while many other Canadian products were found on the free list. Canada, on its part, agreed to suspend its 3 per cent excise tax on the 447 items imported from the United States, and made other concessions to put products from the United States on a virtual parity with British imports, thus nullifying the adverse effect of the Ottawa agreements. Politically the pact was generally viewed as possessing immense significance, representing an important step toward closer relationship with the United States. This was in harmony with what was clearly the basic trend of Canadian foreign policy during the year. President Roosevelt's statement of Aug. 18 that 'the people of the United States will not stand idly by if the domination of Canadian soil is threatened by any other empire' was very favorably received throughout Canada. In reply Prime Minister King asserted at Woodbridge, on Aug. 20, that Canada had an obligation to see to it that 'enemy forces should not be able to pursue their way by land, sea, or air to the United States across Canadian territory.' He declared that President Roosevelt's statement would mean no slackening in the Canadian defense program. In line with Canada's new interest in the Western Hemisphere, there were frequent reports that it would soon seek membership in the Pan American Union. Although the Prime Minister admitted in December that the matter was being given careful consideration, no official step was taken at the 1938 Pan American Conference at Lima.

Parliament.

The 1938 session of Parliament which was convened on Jan. 27 was a relatively uneventful one. The Liberal party, under the leadership of W. L. Mackenzie King, with 178 seats, was in complete control. Conservative representation had diminished to 38, while the Social Credit party had 17, the Cooperative Commonwealth Federation 7, the Reconstruction party 1, United Farmers (Ontario) 1, and Independents 1. Although the Minister of Justice, Ernest Lapointe, supported a bill introduced by C. H. Cahan, Montreal, abolishing appeals to the Privy Council, no action was taken pending investigation and report by a special committee of the Canadian Bar Association. Parliament voted an appropriation of approximately $45,000,000 for national defense. This was fully twice the amount spent on armaments the previous year. A $5,800,000 increase in military appropriations is being spent on mechanizing Canada's land force, which will be smaller than heretofore but much more mobile and with far greater firing power. The paper strength of the defense force was reduced from 135,000 to 90,000, but it is to be supplemented by a small navy and air force. A small group consisting of C.C.F. members and a few Liberals voted against the rearmament proposals.

The 1938 Parliament adopted a $40,000,000 national program of conservation and development 'designed to stimulate employment and enlarge the national income.' It took action for the complete nationalization of the Bank of Canada, adopted a $50,000,000 low-cost housing scheme, passed a measure for the extension of a youth-training program, set up a Board of Transport with authority over transportation by air and water as well as rail, rendered further assistance to war veterans, and authorized the registration of labor union shop cards. New regulations were also adopted regarding the holding of national elections.

The Lower House passed a bill for the establishment of a penitentiary commission. This was killed by the Senate, mainly because it would retire General D. M. Ormond, the superintendent. Despite the Senate's action. Ernest Lapointe. Minister of Justice, promulgated a series of important reforms in the Canadian penal system early in August, which went into effect Aug. 15. Inspector G. L. Sauvant was appointed temporary successor to General Ormond whose post was abolished by administrative action early in July.

A serious controversy arose during the session over the efforts of Premier Hepburn and the Ontario Hydro-Electric Power Commission to export power to the United States. This effort was blocked by Prime Minister King on the ground that it might disturb Canadian-American friendship if an emergency arose which would make it necessary to recall the power suddenly.

Another source of conflict between Premier Hepburn and Prime Minister King was the St. Lawrence Waterways issue. In the latter part of May. Secretary of State Cordell Hull submitted a new draft of the St. Lawrence Waterway treaty to the Canadian Government. The document called for a 27-foot seaway from the ocean to the head of the Great Lakes. Out of a total cost of approximately $290,000,000, Canada was asked to put up approximately $40,000,000. Ontario would be permitted to postpone power development until it needed the power, while the United States could start on its side immediately. The United States also indicated that it would remove its objection to the importation of Ontario power. The draft treaty was only briefly discussed in the House of Commons, the Minister of Justice pointing out that the proposal would require considerable study. Negotiations were started, however, only to be brought to an abrupt standstill in September as a result of Premier Hepburn's flat refusal to enter into the technical study of the project as it affected his province. Although it is probable that Prime Minister King could have proceeded constitutionally without the consent of the provincial government, he apparently decided against arbitrary action on so controversial an issue.

Charges of laxity against the Ministry of Defense with regard to the manufacture of Bran machine guns in Canada received a prolonged airing in the form of hearings before a one-man Royal Commission, to which Justice H. H. Davis was named. The investigation concerned the justifiability of the Ministry granting contracts for the manufacture of the gun to a private concern when no publicly-owned establishment existed, and examined the qualifications of the firm for such an undertaking when its previous experience lay in the manufacture of refrigerators and radios. The investigation was hampered by the withholding of much information by the British Government on the ground that military secrets were involved.

Late in November, Prime Minister Mackenzie King announced that the 1930 session of Parliament would open on Jan. 12. Since the King and Queen are scheduled to arrive in Canada on May 15, it is believed that the session will temporarily adjourn in May and reassemble, possibly in June, to complete the heavy legislation calendar. The first business of the session, after the Speech from the Throne has been disposed of, is the consideration of the new Canadian-American trade pact. Little difficulty is expected in securing ratification of this agreement. Problems of national defense will probably be considered next, the Government being expected to ask additional appropriations for coastal fortifications, flying bases, and anti-aircraft defense. New legislation providing national unemployment insurance, postponed from the last session, is expected to be introduced by the Government. Owing to the failure of the Rowell Commission to report by the end of 1938, amendments to the British North America Act to smooth out the Dominion-Province difficulties are unlikely at this session. Action is possible, however, on the proposal to abolish appeals to the British Privy Council, though there is some hesitancy about taking a move at this time which might be interpreted as weakening the Empire too.

Political Parties.

Following the closing of the 1938 Parliament, approximately 1,800 representatives of the much-weakened Conservative party met in Ottawa on July 5, 6, and 7. The conference was called to formulate a program for the election campaign which is expected in 1939, and to choose a new party leader in the place of Richard R. Beanett, former Prime Minister, who had retired because of all health. As was expected, the conference was dominated by middle-of-the-roaders. The platform adopted contained little that was new. It included a recommendation for complete exclusion of Oriental immigration and resumption of immigration from the United Kingdom and France when economic conditions permit it. Consultation with the other members of the British Commonwealth on matters of defense was asked, as was the adoption of a national unemployment insurance and retirement scheme. In harmony with the party's traditional position, the conference recommended continued protection of Canadian industry, together with lower taxes on the mining industry. The name of the party was officially changed from the 'Liberal-Conservative' party to the 'National Conservative' party. The former Minister to Washington, W. D. Herridge, a brother-in-law of Bennett's, tried unsuccessfully to force the conference to adopt a program of planning and reform which would carry on Bennett's 'New Deal' policies.

While the struggle was going on over policy, popular interest focused primarily on the battle for leadership. Dr. Robert James Manion, an Ontario physician, young war veteran, Catholic, and Minister of Railways in the last Bennett Cabinet, was chosen on the second ballot over four opponents. Dr. Manion's youth and vigor appear to have imbued new life into the party despite his conservatism and the virtual disappearance of the Conservative party in most of the provincial legislatures. Shortly after his election, Dr. Manion toured the Western provinces where he was enthusiastically greeted by the rank and file of Conservative followers. On Dec. 9, the Ontario Conservatives selected Colonel George A. Drew of Toronto as provincial leader. Colonel Drew had full support from Dr. Manion.

Although the Social Credit party under William Aberhardt maintained its stranglehold on the Province of Alberta during the year, it received a rude setback in its efforts to extend its control to neighboring Saskatchewan. In the provincial elections held on June 8, the Social Credit party entered a full list of candidates and conducted such a vigorous campaign that many political observers feared that they would obtain a substantial number of seats in the legislature. Actually, Social Credit obtained but 2 out of 52 seats. The Liberal party under Premier W. J. Patterson was returned to office for another five years with 37 seats, a small decline as compared with its sweep at the previous election. The chief gainer in the election was not the Social Credit party, as was generally expected, but the C.C.F., which increased its representation from 5 to 11 seats despite a smaller popular vote. The Union Progressives obtained 1 seat, and Independents 1.

Undaunted by the Saskatchewan setback and a final break with Major C. H. Douglas, founder of the Social Credit movement, the Alberta party launched a new program designed to consolidate popular support for the provincial elections which may be held in 1939 and must be held not later than 1940. The new program was formulated after the Canadian Supreme Court had declared, on March 4, that three Alberta laws, the Credit Regulation Act, the Bank Taxation Act, and the Accurate News and Information Act, were unconstitutional. Chief Justice Lyman Duff had also handed down an opinion that the Social Credit Act, basis on Aberhardt's program, was beyond the jurisdiction of the province. The new Aberhardt scheme, known as the 'interim plan,' calls for the creation of credit houses, which are branches of the provincial treasury, in the chief cities of the province. Individuals are invited to deposit their money in these credit houses for which they receive vouchers in return for use in buying goods from cooperating merchants. In case one-third of the vouchers are used for the purchase of goods made in Alberta, the government gives a $3 voucher bonus for every $100 spent. Although critics of the plan expect it to fail either through the public's reluctance to accept the vouchers, or, if they are accepted, through the bankruptcy of the already hard-pressed province, Aberhardt expects that it will give the government sufficient control over credit to defy the banking interests which have hitherto blocked his policies. Reasonable success for the plan, coupled with a further improvement in economic conditions following the good harvest in 1938 should enable the Secial Credit party to maintain their control in the next provincial elections. In 1938, at the only rural by election fought since the Social Credit party came into power three years previously, the Social Credit candidate. C. H. Tade, won a relatively close victory over his Liberal opponent.

Except for the victory of Camillien Houde, a bitter foe of Premier Duplessis, in the December elections for the Mayor of Montreal, there was little indication that the reactionary Union Nationale party of Quebec lost ground during the year. Despite the ruthlessness with which the Padlock Law was enforced, the party won all of the four by-elections held during the year. Two of these were held in constituencies where opposition to Duplessis' policies was exceptionally strong. The failure of the Dominion Government to override the Padlock Law on constitutional grounds undoubtedly strengthened the position of Duplessis. Despite rumors of withdrawal of support by the Catholic Church, no such break actually occurred during the year. Many observers fear that when Duplessis is overthrown it will not be achieved by the Liberal party but by an outright fascist movement such as the new National Unity party. The development of this movement in Quebec depends chiefly on the attitude of the Catholic Church. So far the Quebec fascists have avoided the anti-clericalism of the European movements, and it is feared by some that the Church will throw its support to the new party.

The threat of Duplessis to the present Dominion Government has developed primarily because of his somewhat unnatural alliance with the Liberal party of Ontario under Premier Hepburn. Despite almost constant conflict with the Dominion Liberals under Prime Minister King, Hepburn succeeded in maintaining his vote-getting powers throughout the year. His supporters won two out of the three provincial by-elections held in 1938, the third being carried by the Conservatives against C.C.F., Independent Liberal, and Socialist Labor opponents.

Economic and Financial.

Business in Canada during 1938 was somewhat better than in the United States and many other foreign countries. This may be attributed to the fact that within the last decade Canada has shifted from a predominantly agricultural economy to one based on a combination of industry, mining, and agriculture. Manufacturing was appreciably below the 1937 level during the first nine months of the year. Crops were exceptionally good, but the cash return from agriculture was substantially lower than in the previous year. Mining had an extraordinarily good year, while the forest industries were depressed owing to lack of foreign demand. The fisheries on both seaboards had good catches.

Manufacturing.

The index of manufacturing production for the first nine months of 1938 averaged 104.4 as against 121.5 for the same period in the previous year, a drop of 14 per cent. Iron and steel production was between 15 and 16 per cent lower than in the corresponding period of 1937, while the output of automobiles was off 20 per cent. Electric power production was down 7 per cent, chiefly because of the sharp decline in activity in the newsprint industry. Boot and shoe production for the nine months was cut from 15,100,000 to 13,400,000 pairs. Flour production was about 8 per cent lower, while that of sugar rose slightly. Declines also occurred in the meat-packing industry, particularly in the slaughter of hogs.

The greatest loss occurred in the forest industries, and this was accounted for, in the main, by the spectacular decline of 30 per cent in newsprint production. American newsprint demand fell off sharply as a result of heavy stocking in the closing months of 1937 when an increase of price was announced. The export of planks and boards dropped from 1,427,000 feet in the first nine months of 1937 to 1,209,000 feet in the same period of 1938.

Minerals.

Despite the American recession, the Canadian mineral industry attained the highest production on record in 1938, though lower prices caused the value of its output to be slightly less than that of 1937. Official reports for the first six months of the year show an aggregate production of $200,654,000. The most striking gains over the previous year occurred in gold and petroleum, though the September copper production was the highest for any month on record. Gold output in the first seven months was $92,691,555, the highest in history, as compared with $80,190,421 in the same period of 1937. The output of gold was appreciably higher than the combined value of the nickel, copper, lead, zinc, and silver production. Petroleum output was $2,000,600 higher in the first half of 1937 than in the same period a year ago. Canada now produces more crude petroleum in four days than it did in any month during 1935. The petroleum output was only slightly less in value than that of asbestos which has long ranked next in importance to coal among the nonmetallic minerals. Canada continues to be the world's largest producer of asbestos, the Thetford district of Quebec supplying practically the whole output. Production of nonmetallic minerals in the first six months of 1938 was valued at $52,500,000 as compared with $51,200,000 in the corresponding period of the previous year. Further gains are believed to have been made in the second half of 1938, but detailed figures are as yet unavailable.

Agriculture.

The aggregate value of the principal field crops in Canada in 1938 was $527,410,000, a decline of $30,068,000, or 6 per cent, from 1937, according to an official estimate by the Dominion Bureau of Statistics. The 1938 wheat crop was valued at $198,875,000 as compared with $180,925,000 for the 1937 crop. In quantity, the 1938 crop was nearly twice that of 1937 and the best since 1932. Total production for 1938 was approximately 350,000,000 bushels as against 182,410,000 in 1937, but the average farm price was only 57 cents a bushel as compared with $1,02 in the previous year. Farmers were partially protected against loss resulting from the drop in prices by action of the Dominion Government, announced early in August, guaranteeing an 80-cent a bushel minimum price for number one Northern wheat at Fort William. It is estimated that the Canadian Government will lose some $60,000,000 in making good this pledge. With a view to adjusting Canadian agriculture to the changed world conditions, a conference of representatives from the wheat-growing provinces met at Winnipeg in mid December at the invitation of Premier Bracken of Manitoba. Proposals were discussed for regaining Canada's former export markets and reducing farm indebtedness.

Foreign Trade.

Due largely to the falling off of demand in the United States. Canada's export trade was about 15 per cent lower in the first ten months of 1938 than in the same period of 1937. Total exports for the period, including new gold, were valued at $790,000,000 as against $920,000,000 for the same months in 1937. Imports were also lower, being valued at $570,000,000 from January through October, 1938, as against $670,000,000 in the corresponding months of 1937. Exports of base metals, nickel, copper, lead, and zinc during the seven months ending with July, 1938, totalled $70,233,340, a decline of $15,003,300 as compared with the same period of the previous year. Nickel exports declined from $32,010,300 to $20,000,000; copper from $31,054,500 to $29,245,100; lead from $12,321,000 to $4,740,300; and zinc from $8,945,900 to $6,240,074. Great Britain was again the chief outlet for the shipment of metals. The Dominion now produces 60 per cent of the world's requirements of nickel; 12 per cent of the lead; 12 per cent of the copper and nearly 13 per cent of the zinc.

Figures issued in December, 1938, by the Dominion Bureau of Statistics show that Canada had a credit balance of $218,200,000 in international payments during 1937. Most of this, or $213,300,000, represented the credit balance on foreign trade in merchandise. Gold exports accounted for an additional credit balance of $145,000,000 and tourist expenditures in Canada exceeded expenditures by Canadians abroad by $170,300,000. These two latter items were offset, however, by an adverse balance of $246,200,000 on interest and dividend payments, and debit service payments aggregating $64,200,000. It was the fifth consecutive year in which Canada had had a favorable balance of payments.

Government Finance.

The ordinary revenue of the Dominion Government during the first six months of the 1938 fiscal year (beginning April 1, 1938) totalled $286,977,269 as against $280,216,469 in the like period of 1937. Special receipts brought the total to $287,468,332 as compared with $280,923,965. Collections from customs, and excise and income tax were $263,132,899, an increase of $7,798,100. Ordinary expenditures for the period were $176,691,015 as against $174,480,775. Government-owned enterprises took an additional $43,082,400 as against only $29,796,302 in the same period of 1937. Beyond this there were special expenditures of $13,509,101 and capital expenditures of $2,065,224, and other charges of $321,575.

The Dominion closed the 1937-38 fiscal year on March 31 with a deficit of only $13,775,000. This contrasted with a deficit of $59,000,000 in 1936-37, and $160,000,000 the previous year. The budget for 1938-39 as presented by Charles Dunning, the Minister of Finance, allowed for a deficit of $23,000,000 which may be somewhat exceeded owing to increased requirements for national defense. No new taxes were levied in 1938. The Post Office showed a surplus of $3,250,000 in the last fiscal year, somewhat less than in the previous year.

Although the Dominion has been spending somewhat more liberally in the past year for public works and other recovery measures, the number of employable persons on relief dropped from 154,000 in May to 124,000 in August, the number in the latter month being 13 per cent lower than in the previous August.

Two large long-term loans were successfully floated by the Dominion during the year. The first, in six-year 2 per cent bonds and twenty-year 3 per cent bonds, was offered in May, and brought in a total of $140,000,000, $90,000,000 in conversions and $50,000,000 in new money. The second, $40,000,000 in thirty-year 3 per cent bonds, was disposed of in November without difficulty.